Consumers who are struggling with monthly credit card payments might be surprised to learn of a helpful program that is rarely discussed. These consumers have likely looked for help and advice from friends and family and may have even looked for help online or from financial institutions. There is one type of program that is rarely advertised, making it hard to find, but it might just be what struggling consumers are looking for. It’s called a hardship program and just about every creditor has one. For those struggling in the short-term, this type of program could be a great option. We are going to cover the basics of how to find out more about these programs, how to maximize their effectiveness, and how to avoid certain pitfalls. We’ll also explain a few similar programs and try to clarify the differences.
What is a credit card hardship program, anyway?
A hardship program is a form of short-term payment relief that is sometimes offered to consumers who are struggling to meet their financial commitments. These are typically administered in response to a job loss, medical circumstances, or other unforeseen financial difficulties. Typically, the creditor provides a lower interest rate along with some other concessions (for example: waived fees). These programs typically last between six months and one year and are usually dropped if the consumer misses a payment.
The program allows the consumer to retain a realistic pay schedule and overall level of financial commitment. At the same time, it helps the creditor ensure that it will continue to get steady payments from the debtor, and the creditor hopes that this leads to less complications than charging off the account, sending the account to collections, etc.
How do I enroll in a hardship program?
As a rule, hardship programs are not advertised. As you can imagine, it’s not in credit card companies’ best interest to tell consumers “If you can’t pay, let us know.” Instead, consumers have to call the creditor directly and initiate a conversation. But, it’s not quite as simple as it sounds. There are some important points to keep in mind when inquiring about a hardship program:
#1 Talk to the right person
When you call your creditor, ask for the hardship department or to speak to someone in “customer assistance.” In some cases, there might be a number for a hardship program on the back or bottom of your credit card statement. If not, use the general number and ask. If you get strange or unhelpful responses, hang up and call again later.
Once you do get someone from the hardship program on the phone, you still want to make sure that you get the help you need. Like with most departments, there are hierarchies in the decision making process. You may need to ask to speak to someone higher up, or try calling again later.
#2 Don’t say too much
You don’t want to give away too much information about your situation right away. Think of your initial call as an inquiry rather than a done deal.
Ask questions about the specifics of the plan, including what arrangements can be made for borrowers. Once you feel comfortable, you can begin to talk about the specifics of your situation (it’s helpful to have a copy of your budget handy). Just keep in mind that creditors may be able to make modifications to your account based on the conversation you have. For instance, if you express difficulty to pay, your credit limit could be lowered or access to your account could be limited. It’s also important that you don’t promise more than you can pay.
#3 Say enough
You can’t hide the specifics of your situation and get on a hardship program. The key is to inquire first, determine how the program will fit into your budget, and then make a decision. When you commit to the hardship option, be specific and firm. Have a number in mind and be willing to say “This is what I can afford.” Some creditors may have the flexibility to work with you on this, while others may be more rigid and less willing to negotiate.
#4 Ask about credit reporting
This is one of the most important questions you can ask when inquiring about a hardship. If you are on the fence, this could be a deciding factor.
Ask, specifically, what type of notation will be sent to the credit bureaus. Also, know that in most cases the creditor will make you close the account in order to participate in this program. While this can lead to a ding in your credit score, the blow will be a little softer if the account is reported as “closed by consumer.” Talk to the representative and try to have the account closed by consumer instead of “closed by creditor.” Also, if the creditor reports that you make full and on-time payments as part of the program, your score should increase again.
Other Debt Management Options
A hardship program is a great resource for consumers who find themselves struggling with credit on a short-term basis. But for consumers who are deeper in debt or have other financial difficulties, there might be better options. One such option is what the FDIC refers to as a “workout program,” which is essentially a hardship program designed for those with long-term difficulties.
Another option is the debt management plan, and this can actually be used in conjunction with a credit card hardship program. In a debt management plan with a nonprofit credit counseling agency like Clearpoint, a credit counselor serves as mediator between the debtor and creditor. This is similar to a hardship program in the sense that the debtor is seeking a modified repayment program with some concessions.
At Clearpoint, we have a long standing relationship with many creditors. They know that when consumers come to us for help, they are serious about repaying their debts. Because of this, the creditors typically offer benefits like reduced interest rates, waived late charges, and waived over-the-limit fees. And in some cases, these benefits are better than they offer to consumers who just use their hardship program. But, there are still some creditors who don’t allow the use of debt management plans and only make arrangements internally in the form of a hardship program. So, in many cases, consumers can use a combination of debt management and a hardship program.
If you think that reduced interest and waived fees could help you get back on track financially, then talk to a credit counselor to see if you qualify for a debt management program. It all starts with a free counseling session and budget review.